Why you should use a Directors Guarantee
Understand what a Directors Guarantee is, and how having one can help make sure your B2B business gets paid on time.
If your business provides goods or services to a limited company, then a Directors Guarantee should be part of contract process. Why? Because a Directors Guarantee is a personal guarantee and means that the Director in question is liable for debt or debts due from his or her company.
Such a guarantee is needed because a limited company is regarded in law as a separate legal entity. Meaning that if your client’s company were to compromise with its creditors or go into liquidation you might not get paid the whole of your debt or even part of it.
No Directors Guarantee? Beware of the risk!
This is a risk, if you are dealing with start-up companies or ones that you have not deal with before and therefore do not have a trading history that you can rely on. When you are dealing with a company that possibly may only have one director or has only been trading for a few months the personal guarantee of the director is an essential back up to enable you trade profitably.
Directors Guarantee – How does it work?
Once in place a professionally executed Directors Guarantee will ensure ultimate personal recourse. This means that if a company (your client) fails to pay your debt on time, makes composition with its creditors or other predetermined triggers, the director in question will become personally liable for the payment of your debt.
This delivers these obvious benefits: –
- The risk of personal liability to a director is likely to ensure prompt payment
- If you are able to pursue an individual and obtain a judgment for your debt this will create more enforcement options. If the director owns a property you can look to that; his personal bank account can also be targeted.
Aidan Squire, Solicitor at TM Law says:
“I consider a Directors Guarantee to be an essential tool of the trade for SME business owners. If your clients are fellow SME limited businesses, then you should include a Directors Guarantee as part of your new client sign up process.
It’s true that large corporations may refuse to provide a Directors Guarantee, and often have the muscle power to say no. You can take a smart judgement call on this, considering the scale of the project and longstanding financial history an established large organisation has.
But, when you start trading with a small to medium sized limited company and they refuse to provide a Directors Guarantee, it’s time to hear alarm bells ringing.”
At TM Law we provide the Essex based business we support with a Director Guarantee template. Designed for your business, it’s a document you can use regularly as new business is won.
Why a Directors Guarantee is your best weapon
In our recent blog, 5 ways to speed debt recovery, we outlined some frightening facts. SMEs in the UK are owed a staggering £26.3bn in overdue payments. And, as a specialist debt recovery solicitor, we’re all too aware of the day to day impact late payments have on the Essex small businesses we help. The fact is, cash flow is a struggle when you are kept waiting beyond your stated payment terms.
Having a Directors Guarantee in place gives you the power to prevent many of the ramifications of late payments:
- Forced to pay suppliers late
- Struggle to pay own staff on time
- Have difficulty paying business bills, like energy, rates and rent
- Make personal salary sacrifices to keep cash in the business
About TM Law – Specialist Debt Recovery Solicitors
Based in Hockley, Essex, TM Law is a small and dedicated solicitors. With many years’ experience, helping business owners and local individuals with matters of personal injury, compromise agreements, employment disputes, debt collection, commercial disputes and much more.
As a specialist debt recovery solicitors, TM Laws’ knowledge of the debt recovery system available to recover money is second to none, and their approach is proven to achieve maximum recovery for minimum outlay on behalf of local business.
For a personal service, practical advice and quick recovery of your money contact us today. We offer a fair, fixed fee service and we’re always happy to help.